barry_carr.jpg (15938 bytes)

Barry Carr, President, CEO
TeleVideo Multi-Media Inc.

 Will You Have Enough Money to Retire?

  

  At Current Savings Rates, Most People Won't...

  The continuing controversy over how best to fund Social Security and Medicare for the next century has kept
  the looming "retirement crisis" on the front page of America's newspapers. While experts argue back and
  forth about just how serious the crisis is, one fact seems clear to all concerned: today's workers must take
  the primary responsibility for funding their own retirements, whether they are 10, 20, or 30 years in the future.

  Traditionally, retirement income has been compared to a "three-legged stool," the legs being Social
  Security, pensions, and savings. But with Social Security looking sick, and today's highly mobile workers -
- especially contractors -- rarely in one place long enough to build up any substantial pension benefits at a
  single place of employment, the primary responsibility for financing a secure retirement is falling more and
  more directly on workers themselves.

  This means that personal retirement savings are now more important than ever. But unfortunately, a recent
  study shows that today's employees aren't saving nearly as much as they'll need to fund safe, secure
  retirements in the 21st century.

  The Workplace Pulse survey, conducted by the Washington, D.C.-based Employers' Council on Flexible
  Compensation (ECFC), shows that while working families saved one third more toward retirement during
  1996 than they did two years earlier in 1994, they're still not saving nearly enough to meet their retirement
  needs.

  Average annual retirement savings rose to $2,388 during 1996, an increase of 11 percent over 1995
  and 34 percent over 1994. Even at this higher rate, the savings of workers in every age group are
  insufficient to meet their retirement income expectations. Expectations for annual retirement income rose
  nearly 8 percent between 1995 and 1996, to $26,256 from $24,372.

  Workplace Pulse found that the average worker aged 25 to 34 saved only $1,761 during 1996, less
  than the maximum contribution limit for Individual Retirement Accounts (IRAs). But according to figures
  developed by Colonial Life Insurance Company, which co-sponsors the annual survey with ECFC, the
  average 30-year-old worker needed to save $662 more each month during 1996 than he or she actually
  did to achieve an annual retirement income of just $26,256 in constant dollars (assuming 4 percent annual
  inflation, 11 percent investment interest rate, and life spans based upon actuarial tables). A 60-year-old
  worker with $140,000 already saved toward retirement should have been putting away an additional
  $2,325 per month to retire on a $26,256 yearly income.

  "There's a huge gap between what people expect and what they will likely receive," says Colonial Life
   Vice President John Penko. "For younger workers, there may still be time to catch up. For older workers,
   it is going to be very difficult if not impossible for them to live their retirement dreams, even though workers
   over 45 are saving 31 percent more than they were two years ago."

  More Self-Reliance

  The 1996 Workplace Pulse survey shows dramatic changes in workers' attitudes and behavior toward
   retirement savings over the past five years, according to Ken Feltman, executive director of the Employers'
   Council on Flexible Compensation.

  "More workers now realize that they can't depend upon employers or the government. One third of those
   surveyed said they'll have to look to themselves to finance their own retirements, while in 1992 only 18
   percent felt that individuals should pay the majority of retirement needs.

  "Workers also realize they aren't saving enough," Feltman observes. "Seventy-one percent of those
  surveyed said they were not setting enough aside for retirement compared to 60 percent in 1992. The
  sad reality is that they're correct; and for many, time is quickly running out."

  The Workplace Pulse survey also found that:

  •  
Only half of all workers over 45 (51 percent) say that they have an adequate retirement plan in place. Nearly one in five total workers (19 percent) have given their retirement    needs little thought.
  •  
Workers want to have greater choice in making their retirement plans. Two-thirds (66 percent) said they would like their employers to provide 401(k) plans, preferring these self-directed retirement plans over employer-directed plans or Social Security.
  •  
   When asked about expectations for their standard of living in retirement, workers' responses were virtually unchanged from the 1995 survey. Forty-seven percent said they expected their retired standard of living to be "about the same" as when working and 6 percent said "much better," while only 10 percent predicted "much worse." Overall, one-fifth of those surveyed (20 percent) believed their retired standard of living would be "better" than while they were working -- an impression not shared by most retirement analysts.

  The good news is that a whopping 43 percent of those workers surveyed said they had
  increased their rate of retirement savings during 1996, compared to the year before.
  The bad news is that it still wasn't enough.

   Savings Gap

  The Workplace Pulse survey reveals a widening "savings gap" for workers at all ages. Although the
  average American worker saved $2,388 per year toward retirement during 1996, the very same
  employees said they should be setting aside $5,850 annually to ensure that their retirement needs are
  met. An annual retirement savings gap of $3,462 exists for the average American worker. However, as the
  accompanying chart shows, the actual gap increases rapidly with the age of the worker. Or put another
  way, while all age groups studied are putting away less than they need to for retirement, the older working
  generation needs to be saving the most -- because it has the least time to make up the difference.

   The Bottom Line

  Feeling smug? Figure the Workplace Pulse survey results don't apply to you because, as a computer
  contractor, you’re pulling down a cool $60,000 -- or $90,000 -- rather than the U.S. average family
  income?  Then you'd better think again, because the 1996 survey findings do apply, in a very real sense,
  to all workers. How? Look at it this way:

  The higher your present working income, the higher your retirement expectations are probably going to
  be.  So, if your goal for annual retirement income is, say, $50,000, then you need to be saving
  considerably more each month than the already-high figures quoted above -- almost certainly a great
  deal more than you're saving today.

  How much do you need to save? There is no single right figure, because what happens to your retirement
  savings is so inextricably linked to the unpredictable rate of inflation. But the best short advice is to save,
  save, save. Save for retirement as if your life depended on it, because someday in the next century it
  certainly will. At the very least, you ought to be maxing out on contributions to every tax-advantaged
  retirement savings plan available to you in your particular employment circumstances. IRAs, 401(k) plans,
  Keoghs, and SEP-IRAs -- contribute the maximum permitted by law and your employer(s) to each one,
  if you can afford it.

  And if you can't, at least do better. Make a very late New Year's resolution to start saving 50 percent more
  toward retirement each month than you have been up to this point. And to afford this major change in your
  savings habits, start looking around for ways to economize on other regular expenses. Rest assured that if
  you're not economizing for your retirement savings now, you certainly will be after you retire.

  We all have one shot at saving for retirement. If we blow it, we don`t get to go back and do it over again. 
   Procrastination is the thief of time.

   "What are you doing right now to prepare for your retirement? Remember the best time to start
      was 20 years ago... the second best time is today".


    Can you roll over a traditional IRA into a Roth IRA?
In typical tax fashion, the answer is a qualified "Yes."

Transferring a Traditional IRA to a Roth IRA is also known as a Roth IRA "conversion." There are 2 requirements for a Roth IRA conversion:

1. Your income must be less than $100,000
2. If you file Married Filing Separate, you and your spouse must not live together for the entire year.

So qualifying for the conversion isn't that difficult -- but here's the important point: be aware that the conversion amount is considered taxable income in the year of the conversion. Depending on the conversion amount and your tax rate (federal and state), you could end up with a big tax bill.

The trade-off is the long-term tax benefits of the Roth IRA: assuming you keep the Roth IRA intact for 5 years and you begin withdrawals after age 59 1/2, then all Roth withdrawals are tax-free. Withdrawals from a Traditional IRA are not tax-free. This distinction is the main attraction of the Roth.

I advise you to "crunch the numbers" before doing the conversion; make sure you know the immediate tax consequences before making a decision.